FY 2022 - a brief preview

Quarter 4 result was released on 24/8/22 and recently (4/10/22) FY 2022 audited account was released also.

To recap, here is the production (FIPC = Repsol):

And corresponding revenue:

Adjusted core Net profit for FY 2022.                              Compared with FY2021.

A big jump in core net profit of 269% for FY 22 from previous year.

Financial Year 2023 - First Half

Last quarter (3Q22), management released the next quarter production that would be sold. This quarter (4Q22), management not only release next quarter (1Q23), but also the following quarter (2Q23) as well. The rational to release two quarters (production to be sold) is to ameliorate the fear of coming 1Q23 lower production compared with 4Q22. This would caused Hibiscus share price to drop.

North Sabah has been undergoing major maintenance since March 2022 that reduced average daily production to 4+K from 6K. This caused quarterly production sold to alternate between 300K and 500K. The major maintenance will end in September 2022. Thus, expected production to be sold in 2Q23 and future quarters is expected to exceed 500K.

Also, Anasuria’s riser issue would be resolved in q3CY22 – 2Q23 Anasuria is expected to jump to 230K from 173K in 1Q23. The lower Anasuria 1Q23 production could be due to shut-down to facilitate the riser issue to be resolved.

Figures in italic are estimates.

The (blended) oil prices reflect the quarter’s Ringgit exchange rate, average dated (spot) oil prices and percentage of FPIC production sold to total sold. FPIC gas price is much lower than that of the North Sea gas price. Obviously, 2Q23 (Oct-Dec22) prices and exchange rates are guesstimate, err on the conservative side.

The “Transition Service Agreement” should come to an  end this September 2022, as such, the net profit margin for 2Q23 should be better.

With both North Sabah back to full production and Anasuria riser issue resolved, 3Q23 and 4Q23 (2H23) should be better than 1H23. However, this is not so as outlined below.

In the Corporate Business Update 24/8/22, management gave the FY 2023 production target. As Q1 & Q2 FY23 were also given, the second half production was back calculated and shown in the graph below.

It should be noted that there would be a 40% reduction in the production of oil. Perhaps, there are some maintenance / production issues that have not been announced but planned.

However, FY 2023 total production (to be sold) is 7,350,000 (average of 7.2m to 7.5m) boe, an increase of 57% from FY 2022 4,671,769 boe.

It is then estimated that there is high potential for Hibiscus’ revenue to cross RM 2.5B and with net margin of around 24%, core net profit could be RM 611M, resulting in:

EPS ≈ 30 sen

Coming quarterly report in November should provide more clarity.

Capital reduction and share buy-back

Hibiscus Petroleum Berhad, the Company will carry out capital reduction as announced on 4/10/22.

Since inception in 2011, the company accumulated a loss of RM 691M. Majority of this loss is due to investment in exploration – Lime and Australian VICs (636M) while the balance is attributed to early days (2011 to 2016) administrative expenses before Anasuria, no income.

It is amazing that the Company can incur a loss of 691M yet, today is robust and “printing” money with core net profit of RM 383M, and next year, core net profit estimated to be RM 611M.

The proposed share buy-back, while welcome, would not materailly improve EPS much. Pro and cons are outlined on page 6 of the announcement.

Oil price

OPEC+, on 5/10/22, announced a production cut of 2 mbpd, effective November 2022. Actual cut will be nearer to 1 mbpd due to existing chronic under production.

This is a pre-emptive move to coming demand destruction in OECD countries, especially Europe.

There is a disconnect between the “paper” and the physical markets as can be seen in the chart below.

Another important decision made during the 5/10/22 announcement was to extend OPEX+ till 31/12/23.

These decisions, extension of OPEX+ cooperation till 31/12/23 and the 2mbpd cut, showed that OPEX+ is firm in setting a floor to oil price (>90 per barrel).

Conclusion

In conclusion, guided 57% increase in production over FY 2022, OPEC+ putting a floor to oil price (>90/barrel), Hibiscus revenue could exceed RM 2.5B resulting in core net profit of RM 611M with EPS of 30 sen.

Indeed, Hibiscus Future is BRIGHT.

Happy investing, PEACE.

Disclaimer:

I wrote this myself without pay. I and my families own Hibiscus shares. This is not an advice to buy / sell Hibiscus or any other equities / securities / assets.